(Bloomberg) — B. Riley Financial Inc. received more demands for information from federal regulators about its dealings with now-bankrupt Franchise Group as well as a personal loan for co-founder and Chairman Bryant Riley.
Most Read from Bloomberg
The Los Angeles-based investment firm and Riley each received additional subpoenas in November from the US Securities and Exchange Commission seeking documents and information about Franchise Group, or FRG, the retail company that was once one of its biggest investments before its collapse last year, according to a long-delayed second-quarter filing. The agency also wants to know more about Riley’s pledge of B. Riley shares as collateral for a personal loan, the Tuesday filing shows.
B. Riley previously received SEC subpoenas in July for information about its dealings with ex-FRG chief executive Brian Kahn, part of a long-running probe that has rocked B. Riley and helped push its shares to their lowest in more than a decade. Bryant Riley, who founded the company in 1997 and built it into one of the biggest US investment firms beyond Wall Street, has been forced to sell assets and raise cash to ease creditors’ concerns.
The firm and Riley “are responding to the subpoenas and are fully cooperating with the SEC,” according to the filing. The company said the subpoenas don’t mean the SEC has determined any violations of law have occurred.
Teaming Up
Shares in B. Riley rose 15% by mid-afternoon in New York trading after the company’s overdue quarterly filing gave investors their first formal look at the firm’s performance in more than half a year. The data included a net loss of more than $435 million for the three months ended June 30. The shares through Monday had plunged more than 80% in the past 12 months, trading at one point for less than $4 each.
B. Riley said in a statement it had $257 million in cash at year-end, which includes enough to pay off a batch of senior notes in February, and that it expected to have enough liquidity for at least the next 12 months. Its overdue third-quarter report will be filed “in the near future,” the firm said.
“With our balance sheet in a stronger position, we expect to once again invest in our core financial services businesses,” Riley said in the statement. “We have maintained strong net capital levels in our broker dealer and believe we are well-positioned to capitalize on the expected recovery in the small- and mid-cap equity markets.”
The firm still faces fallout from the ill-fated buyout of Franchise Group and its subsequent bankruptcy. B. Riley and Kahn — a longstanding client and friend of Bryant Riley’s — teamed up in 2023 to take FRG private in a $2.8 billion deal. The transaction soon came under pressure as earnings deteriorated and as Kahn was tagged as an unindicted co-conspirator by authorities in the collapse of an unrelated hedge fund called Prophecy Asset Management. That led to a fraud conviction for one of the fund’s executives.
Internal Inquiries
Kahn has said he didn’t do anything wrong, that he wasn’t aware of any fraud at Prophecy and that he was among those who lost money in the collapse. But federal investigations into his role have spilled over into his dealings with B. Riley and its chairman, who have said internal probes found they “had no involvement with, or knowledge of, any alleged misconduct concerning Mr. Kahn or any of his affiliates.”
FRG filed for Chapter 11 bankruptcy in November, a move that led to hundreds of millions of dollars of losses for B. Riley.
The disclosure of the federal subpoenas comes shortly after both Kahn and B. Riley were sent subpoenas on Dec. 31 in the bankruptcy case, court records show. The official committee of unsecured FRG creditors demanded “documents, information, or objects or to permit inspection of premises.”
Kahn sent responses and objections, according to court papers filed Monday, which didn’t detail the contents. An attorney for Kahn didn’t provide a comment, and B. Riley didn’t have an immediate comment.
Kahn Loan
One of the bigger financial setbacks to arise from the FRG deal was a loan that B. Riley made to Kahn for about $200 million, which was secured against FRG shares. With that company’s collapse into bankruptcy wiping out equity holders, the value of the remaining collateral for this debt has now dwindled to only about $2 million, the filing shows.
The company acknowledged Bryant Riley’s informal offer in August to take the company private, and repeated that the matter was referred to a special committee of independent directors. But it didn’t name the members or say whether negotiations had taken place in the intervening five months.
Riley had said his bid might be financed with debt or equity but didn’t identify the potential backers. The filing reiterated that there’s no assurance that a definitive offer will be received.
B. Riley also said it’s no longer considered a well-known seasoned issuer, so “accessing capital markets could take longer and cost more than would otherwise be the case.”
–With assistance from David Voreacos.
(Updates with bankruptcy court subpoenas in the 11th paragraph.)
Most Read from Bloomberg Businessweek
©2025 Bloomberg L.P.